Reasonable time for penalty proceedings under the compounded levy scheme bars delayed action beyond five years

Penalty proceedings under the compounded levy scheme must be initiated within a reasonable period even where Rule 96ZP(3) of the Central Excise Rules, 1944 contains no express limitation. The Punjab & Haryana High Court followed the settled view that five years is a reasonable benchmark for commencing such action. Because the penalty notice in this matter was issued after expiry of that period, the penalty was treated as unsustainable and deletion of the penalty was upheld in favour of the assessee. The revenue's reliance on the cited Supreme Court decision did not change the result.

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Issues: Whether penalty proceedings under Rule 96ZP(3) of the Central Excise Rules, 1944 could be sustained when initiated after a long delay and whether a reasonable period of limitation of five years applied.

Analysis: The appeal concerned imposition of penalty for delayed payment of duty under the compounded levy scheme. The Court followed the settled view that although the rule did not prescribe an express limitation period, proceedings for penalty must be initiated within a reasonable time. A period of five years had been accepted as reasonable for such proceedings, and on the facts the action had been initiated after expiry of that period. The reliance placed by the revenue on the cited Supreme Court decision did not alter this position.

Conclusion: The penalty was not sustainable as the proceedings were initiated beyond the reasonable period of five years and the deletion of penalty was upheld in favour of the assessee.

Final Conclusion: The revenue's challenge failed because delayed initiation of penalty proceedings under the compounded levy regime could not be sustained after expiry of the reasonable period recognised by the Court.

Ratio Decidendi: Where no express limitation is prescribed for penalty proceedings under the compounded levy scheme, they must still be initiated within a reasonable period, and five years is a reasonable benchmark.

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